ADEN/SANAA At least 26 Yemeni government soldiers and 17 Islamist militants linked to al Qaeda were killed on Wednesday in heavy fighting for control of a stadium near the southern city of Zinjibar, officials said.

Opposition officials said more than 300 government soldiers had defected, in a further blow to President Ali Abdullah Saleh as he recovers in Saudi Arabia from injuries sustained in an attack on his palace in early June.

In a message sent through his foreign minister on state television on Wednesday, Saleh called for dialogue with the opposition to implement a Gulf-brokered plan for transition of power.

"We discussed the Gulf initiative, and called for the opening of a dialogue with the opposition ... in order to agree on a vehicle by which to implement the Gulf initiative," Yemen's Foreign Minister Abubakr al-Qirbi said.

Al-Qirbi said he had visited Saleh in hospital and that his health and that of other high ranking officials who were injured in the attack was "good and in continuous improvement."

Yemeni officials had said Saleh would make his first public appearance since the palace attack this week, but Saleh's media secretary Ahmed al-Sufi told Reuters the president's plan to record a video message to be broadcast on state television had been delayed on the advice of his doctors.

Yemen, the poorest Arab state and a neighbor of the world's largest oil exporter Saudi Arabia, has been shaken by months of protests against Saleh's three-decade rule, a resurgent wing of al Qaeda and a separatist rebellion in the south.

The United States and Saudi Arabia fear al Qaeda may use the chaos to launch attacks in the region and beyond.

Yemeni officials said the militants seized control of the stadium from government forces, who have been using the facility -- built recently to host a regional football tournament -- to support troops fighting to dislodge the militants from Zinjibar.

An official said a counter-offensive was underway to retake the stadium, located near a military base.

Yemeni officials had been reporting successes against the estimated 300 militants who seized control of Zinjibar in May in the midst of a groundswell of popular protests against Saleh.

Saleh's opponents say his forces handed over the city to the militants to bolster his argument that his departure would lead to an Islamist takeover of the Arabian Peninsula state.

Yemeni air force planes had killed at least 10 gunmen in attacks on Zinjibar earlier on Wednesday, a local Yemeni official said. One strike hit a bus traveling from Zinjibar to Aden, the official added, killing five passengers and wounding 12 other people.

DEFECTION

Opposition officials reported that more than 300 members of the Yemeni security forces, including 150 from the Republican Guards led by Saleh's son Ahmed, had defected to rebels.

"From the podium of the Square of Change in Sanaa, an announcement has been issued that 150 soldiers from the Republican Guards, 130 Central Security soldiers and 60 policemen have joined the revolt," an opposition message said.

Government officials were unavailable to comment on the report.

If confirmed, the mutinies would be a serious reverse for Saleh, who has spent the past three weeks receiving medical treatment in Riyadh for wounds suffered in the June 3 attack.

There have been a series of defections by security forces since the anti-Saleh uprising began in February. Most prominent was the defection in March of Brigadier General Ali Mohsen, who has since sent in his troops to guard protesters in Sanaa.

The protests have culminated in battles between Saleh loyalists and gunmen from the powerful Hashed tribal federation in Sanaa that brought the country to the verge of civil war.

Months of unrest have cost Yemen $4 billion, a senior Yemeni official said on Wednesday, adding the Arab state was in talks with potential donors to help plug a gap of $1.5 billion in government commitments for projects funded by Sanaa.

"We are talking with the IMF, the World Bank and donor countries, whether Gulf Arab states or others. There may be some discussions next week with the IMF," Abdulla al-Shater, deputy planning and international cooperation minister, told reporters on the sidelines of a financial conference in Saudi Arabia.

Yemen has been largely quiet with a ceasefire in place since Saleh was injured in the attack, which investigators say was caused by explosives planted in the palace mosque where he and senior government officials were praying

Saleh, 69, who has not been seen in public since the attack, has resisted pressure from the United States and Saudi Arabia to hand over power to his deputy, Abd-Rabbu Mansour Hadi, under a Gulf nations' initiative to end the crisis.

Hadi has been running the country in Saleh's absence but the opposition wants a formal hand over of power to pave the way for new elections.

In further violence, a bomb killed a colonel when it exploded in his car on Tuesday in the port city of Aden, a security source said on Wednesday, adding Colonel Khaled al-Yafi'i was the commander of a military outpost guarding the Aden Free Zone business park's entrance.

The outpost was targeted by a car bomb on Friday that killed four soldiers and a civilian and injured 16 other people.

No one has claimed responsibility for the colonel's killing, but Islamist militants affiliated with al Qaeda are active in southern Yemen.

(Additional reporting by Asma Alsharif in Jeddah and Mohammed Ghobari in Sanaa; writing by Sami Aboudi; editing by Janet Lawrence)

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